Buying a Property Through a Company in Spain
Forming and maintaining a property holding company in Spain involves additional costs and administrative work. You must pay for company incorporation (notary fees, registry fees, and initial share capital), and then budget for ongoing expenses like accounting services, annual tax filings, and legal compliance. Even a small company must file corporate tax returns and annual accounts, which usually means hiring an accountant or managing a bookkeeping system. These setup and management costs eat into your investment returns. By contrast, buying property as an individual is straightforward and low-cost – you avoid all the corporate administration overhead. For a single-property investor or someone with modest rental income, the property investment structure in Spain that involves a company often isn’t cost-effective once you tally the added expenses.
Tip: If you only plan to own one or a few rental properties with limited income, the cost of running a company (tax compliance, accountancy, annual registry fees) can outweigh any potential tax savings. Always calculate whether the expected benefits justify the fixed costs of a corporate structure.
2. No Personal Tax Exemptions or Deductions
When you hold real estate through a company, you lose access to several tax exemptions and deductions that are available only to individuals. Spanish tax law offers certain reliefs to personal taxpayers (under IRPF, the Spanish personal income tax) which do not apply to companies. For example, individuals can benefit from capital gains tax exemptions when selling a primary residence (such as the reinvestment exemption for buying a new home, or the total exemption if the seller is over 65 and selling their main home). A company cannot claim these personal exemptions because a corporation cannot have a “principal residence” or personal circumstances – any gain the company makes on selling a property will be subject to corporate tax with no special relief.
Similarly, personal owners enjoy various allowances in Spanish real estate taxes that reduce taxable income, like a basic personal allowance or specific deductions for home purchase in certain cases (e.g. historic deductions for first home purchases, which don’t apply to companies). A property holding company cannot benefit from those personal tax breaks. Everything is taxed at the flat corporate rate, and there are no lower tax bands or personal minimums. In short, the tax system treats corporations differently, and not in a way that favors small-scale property holdings.
Example: If you use a company to buy a second home that you occasionally use personally, you don’t get the personal-use tax benefits. In fact, tax authorities may require that the company imputes a market rent for your personal use of the property (meaning the company has to declare rental income as if you were a tenant), resulting in tax due on a property that would generate no taxable income if you owned it directly. As an individual owner, you can use a second home or vacation property without any rental income imputation beyond a small imputed income in IRPF for second residences. In a company, that flexibility is lost.
3. No 60% IRPF Reduction for Rental Income
One of the biggest tax perks for individual landlords in Spain is the 60% IRPF reduction on net rental income from residential properties. Under IRPF (Impuesto sobre la Renta de las Personas Físicas, Spain’s personal income tax), if you rent out a dwelling for long-term residential use, 60% of the net rental profits are exempt from taxation. This is a substantial tax break for individual owners, often making personal rental income tax-effective, especially for moderate incomes.
However, companies cannot apply this 60% reduction. Rental income received by a property holding company is taxed under corporate tax rules, at the standard corporate rate (25% on profits) with no equivalent deduction. This difference is a major point in the IRPF vs corporate tax comparison for real estate investments. An individual might effectively pay much less than 25% on rental earnings (after the 60% reduction and progressive tax rates on the remainder, many small landlords end up with a very low effective tax rate). Meanwhile, a company pays a flat 25% on all its net rental profits, potentially resulting in higher tax if the rental income isn’t very large.
For example, imagine a rental apartment yielding €10,000 in net yearly profit (after expenses). A person would include that in their IRPF, but qualify to only pay tax on €4,000 of it (after the 60% reduction) – and if they are in a lower income bracket, the tax on that €4,000 might be quite minimal. A company, on the other hand, pays 25% on the full €10,000, resulting in a €2,500 tax bill. Losing the 60% rental reduction makes a company much less attractive for standard buy-to-let investments unless you have a large portfolio that qualifies for special regimes (for instance, certain rental businesses with many properties can get a corporate tax discount, but those conditions – such as owning 8 or more residential rentals for over 3 years – are hard to meet for most investors).
4. Greater Tax Scrutiny by Authorities
Using a property holding company solely to own real estate can draw greater scrutiny from the tax authorities. Spain’s Tax Agency (Hacienda) is aware that some individuals set up companies to minimize taxes on personal assets, so they pay close attention to these asset-holding companies. If your company is classified as an “entidad patrimonial” (basically a passive asset-holding entity that doesn’t carry out an active trade or business), it may face stricter rules or lose access to certain general corporate tax benefits (for example, small business tax credits or certain deductions are not available to pure holding entities).
Tax inspectors may check that your property holding company isn’t being used to hide personal consumption. Any personal use of a company-owned property (by you or family) must be reported and treated as a rental or as a fringe benefit, which can trigger corporate tax and additional taxes for you as a shareholder. Also, expenses that would be deductible for an active business might be denied if the company’s only purpose is to hold a private residence or a non-rental vacation home. In essence, Hacienda keeps a closer eye on these companies to prevent abuse, and you need to be very careful to separate personal and company finances. This increased compliance burden and risk of audits is a clear disadvantage compared to owning property in your own name (where things are simpler and less likely to be questioned if you follow basic tax rules).
Additionally, consider wealth tax and inheritance tax implications. While individuals have certain exemptions (for example, a primary home is exempt from wealth tax up to a limit, and direct heirs get generous allowances on inheritances), those benefits might not apply when a property is held via a company. You as a shareholder might be taxed on the share value and not enjoy the personal home exemption. Likewise, your heirs wouldn’t qualify for a primary home inheritance reduction on a house owned by a company. These nuances mean more careful tax planning is required, and mistakes or oversight can be costly.
5. Complexity in Transferring or Selling Assets
Finally, using a company adds complexity when transferring or selling the property. If you decide to sell the real estate, it’s not as straightforward as an individual sale. You essentially have two layers to consider: the company and yourself as the owner of the company. There are a few scenarios, all of which can be more complicated than a direct sale by an individual owner:
- Selling the property out of the company: If the company sells the property to a buyer, the company will pay corporate tax on any capital gain from the sale (25% of the profit). Then, if you want to take the proceeds out of the company to use personally, you would likely face a second tax hit (for example, as dividend income or on liquidating the company). This double taxation – first at the corporate level, then at the personal level – can significantly reduce your net returns from the sale.
- Selling the company’s shares: Alternatively, you might try to sell the company’s shares (since the company owns the property, the buyer could purchase the company instead of the property itself). This could avoid the company-level tax on a property sale. However, selling a company is often less attractive to buyers – they would be taking on the company with all its history and any potential hidden liabilities (tax debts, legal risks, etc.), which many real estate buyers prefer to avoid. It also involves more legal work (due diligence on the company) and possibly taxes on the share sale for you. In Spain, the sale of shares by an individual would be subject to capital gains tax in IRPF, which can be up to 23% for large gains. So you might still end up with a similar tax burden, and a more complex transaction, than if you sold the property outright.
- Transferring the property to yourself (or dissolving the company): If you want to move the property from the company to your personal ownership (for example, you set up a company and later decide it’s no longer beneficial), this transfer is treated like a sale from the company to you. The company could incur taxes on any unrealized gain, and you might have to pay transfer tax as the new owner. Likewise, if you liquidate the company to distribute assets, there are liquidation taxes and formal procedures to consider. In short, unwinding a property holding company can be legally and fiscally cumbersome.
- Inheritance and gifting: If you plan to pass the property to your children, holding it in a company adds another layer to the inheritance process. Your heirs would inherit the shares of the company. This can complicate inheritance tax calculations and the division of assets. They might need to continue the company (incurring costs) or dissolve it to get the property, which, as mentioned, can trigger taxes. Directly inheriting a property held in your name is generally more straightforward and often tax-advantaged (especially for close relatives inheriting a primary residence, which can carry significant inheritance tax reductions – reductions that do not apply to company shares in the same way).
In summary, having a company own your real estate reduces flexibility. Exiting the investment or transferring the property is more complex, time-consuming, and potentially expensive tax-wise. Personal ownership, on the other hand, allows you to sell or transfer the property with fewer hoops to jump through – you deal with one level of taxation and simpler paperwork.
There are no tax advantages when you are buying a property in the name of a company, but there are many extra costs and tax liabilities.
Just a brief note to clarify a frequent occurrence for which we receive requests for advice at our Law office. Many clients are advised to set up limited companies to buy properties in Spain or sometimes it is suggested that they purchase the shares of an existing limited company which is the legal owner of a property
Why should you not buy a property in the name of a company?
Should you be thinking of buying a real estate property (either for your own use or as an investment), never use a limited company for this purpose. Limited companies are for running a business, not for holding ownership of real estate properties.
Despite what you are told by many investment and financial companies about the advantages of limited companies, I can confirm that there are no tax advantages or savings of any kind to be gained by using a limited company, but there are many extra costs and potential tax liabilities.
Purchase Real Estate in your own name
You must always purchase your real estate in your own name. It is much simpler, cheaper, and safer. You should never set up a company or purchase the shares of an existing company that holds the ownership of a property, just to buy real estate. The ownership of a limited company or shares in a limited company would imply taxes to be paid and a risk of taking over the company’s previous duties or commitments.
Please also note that apart from the costs and risks of setting up a company or buying an existing company, you would also be liable to pay the annual maintenance costs. Years pass by very quickly and you will see that having a company would involve spending money like water, with no benefits at all.
Potential tax liability for rental payments
Finally, please also be aware that the Spanish Tax Office considers that if you are using a property owned by a company you should be paying rent for said property to your own company. This would implicate an important tax liability for the company who would have to pay annual corporate taxes at the rate of 25 % of the assumed annual rental that you should be paying to the company.
Conclusion: Purchase properties in your own name
Never set up a company to buy a property, nor purchase an existing company holding ownership of real estate. You should always purchase properties in your own name.
And if you have already made the mistake of using a company to buy a property, we would recommend that you liquidate it ASAP and register the property in your own name. This way you would avoid an unpleasant claim from the tax office and would also save a lot of money by avoiding the maintenance costs.
